Credit Union Witnesses Share GSE Reform Concerns

John Harwell (left), associate vice president of risk management at the $1.8 billion Apple FCU in Fairfax, Va., shakes hands with Sen. Joe Manchin (D-W.Va.) following the hearing.

Bill Hampel, senior vice president and chief economist at CUNA, told Congress Nov. 5 his trade association supports the Corker-Warner bill's general approach to housing finance reform, but he suggested several areas in need of improvement.

“CUNA believes the general approach to housing finance reform embodied in S.1217 to be very well thought out and sound public policy,” said Hampel before the Senate Committee on Banking, Housing and Urban Affairs during a hearing on housing finance reform and protecting small lender access to the secondary mortgage market.

“S. 1217 corrects the fatal design flaws of the previous system, while maintaining the effective aspects of that system to create a structure designed to serve borrowers and lenders of all sizes well, preserving a backup government guarantee with sufficient protections that risk to the taxpayer is reduced to nearly zero,” he added in his written testimony.

The Housing Finance Reform and Taxpayer Protection Act of 2013 would phase out Fannie Mae and Freddie Mac. It would also replace the Federal Housing Finance Agency with the Federal Mortgage Insurance Corporation, which would provide insurance on certain mortgage backed securities and regulate the secondary mortgage market. In addition, the bill would create a mutual securitization company assist small lenders access the secondary market.

Hampel suggested some improvements to the bill specific to credit unions.

“We believe that credit unions may need additional investment authority in order to capitalize their share of the mutual envisioned by S. 1217, and we encourage the Committee to provide that authority,” he said.

John Harwell, associate vice president of risk management at the $1.8 billion Apple FCU in Fairfax, Va., also testified at the hearing on behalf of NAFCU.

Both Harwell and Hampel told the committee they support the creation of a mutual. Hampel recommended that the bill not place a cap on membership in the mutual.

“S. 1217 would cap membership in the mutual to institutions with less than $15 billion in assets. We believe that this cap is far too low, and would suggest that lenders of almost any size should be able to use the mutual, so long as they do not themselves issue covered securities,” Harwell said in his written testimony.

Harwell stressed that Fannie Mae and Freddie Mac both play important roles in allowing credit unions to offer mortgage loans to their members.

“A major part of this comes from the ease of transaction credit unions currently experience when using software provided by Fannie Mae and Freddie Mac. At Apple FCU, we underwrite to Freddie Mac guidelines using their Loan Prospector program,” he told the committee in written testimony.

Harwell added that NAFCU “does not support full privatization of the GSEs at this time because of serious concerns that small community-based financial institutions could be shut-out from the secondary market.”

Hampel said the secondary market needs strong oversight.

“We envision a regulator in the mold of the NCUA or the Federal Deposit Insurance Corporation, with direct examination and supervisory authority, given that the full faith and credit of the United States stands behind FMIC insurance, as it does with NCUA or FDIC insurance,” Hampel said in his written testimony.

He also encouraged the senators to support a delay of the CFPB's new mortgage rules.